25 YEARS OF BANKING RESEARCH

In the last 25 years, one factor has almost single-handedly changed ev ery aspect of America: the ease, speed and low cost of accessing infor mation. The financial industry is no stranger to this phenomenon. Tech nology alters everything, and, its impact on banking research is put i nto perspective. From innovations, to destabilization of institutions, and including the declining potency of regulation, the case stands th at the falling cost of information motivated changes in financial inte rmediation. I begin with a glance back to the research of a quarter ce ntury ago. I cover the focal points of research and the topics researc hers overlooked from the era of institutional studies, when the U.S. w as singularly self-sufficient and major topics related to questions of the McFadden Act. The information revolution brought about institutio nal destabilization. In particular, I focus on three issues: substitut ion among forms of capital, regulatory design and potentially underser ved parts of the community. The first section covers bank capital and institutions that promote trade and investment by providing continuity that reduces transaction costs. The capital discussion lends itself t o broaching topics including the theories behind lenders of last resor t (LLR) and deposit insurance. I predict an expanded role for reputati onal capital wherein banking becomes more dependent on market discipli ne. Another aspect focuses on The Quality Movement (TQM), which draws in customer loyalty. TQM means much more than that as well, as it is t he decentralization of decision making and, at best, an innovative man agement paradigm designed to advance the pursuit of economic rents. Fa lling information costs reduce barriers to entry, which in turn erodes monopoly rents in banking. The loss of rents sets in motion adaptatio ns in bank behaviors, which, in turn, opens further avenues of study. The second section discusses governmental regulation versus self-regul ation, and the moral hazards that motivate such regulation. This topic raises questions the trade-off between the mixture of public with pri vate regulation. In banking, professional codes of conduct are not as prominent as in other professions such as medical and legal. Self- and governmental regulation appear to carry entailments for the future of financial services. The higher cost of public regulation should shift regulation inward, thus broadening the opportunities for informal con tracting, The third section visits the Community Reinvestment Act of 1 977, and the effect it has, or rather has not had, on bankers. Costly learning remains necessary on both sides of the issue. Anthropological and sociological insights may be required to fathom the stubborn resi stance of financial discrimination, if indeed, it exists, to falling i nformation costs. I raise an anomaly left in the wake of the declining cost of information: Shouldn't there be a steady decline in discrimin ation? The basic point: it's the technology. The innovations, the dest abilization of institutions, the declining potency of government regul ation all tie back to the drop in the cost of information.